An unhappy 'Kodak moment'

The bankruptcy filing of Eastman Kodak Company this week marked the end of a chapter in American manufacturing history. The venerable corporation that gave the world the Brownie camera and the slogan "You push the button, we do the rest" once dominated the photographic world with its inexpensive cameras and amazing variety of amateur and professional films. But by the end of last year it was rapidly running out of cash, its market share had plunged, and its stock was selling for just 54 cents a share. The company found itself reduced to selling off its patents simply in order to stay afloat.

What happened? The short answer, of course, is the digital camera revolution. Kodak became one of America's most successful companies by adopting the "razor blade" business model — selling inexpensive cameras, then generating enormous profits from the mountain of consumables that went with them: film, chemicals and paper. For most of the 20th century, Kodak was one of the world's largest producers of film for both still and motion picture cameras, and it stuck with that business model even after the advent of digital cameras made its films, chemicals and papers obsolete.

The irony of Kodak's decline, however, lies in the fact that the company's own researchers had invented the first digital camera way back in 1976. That should have put Kodak in a position to dominate the industry with a stream of new products — cameras, printers, printer papers and inks — just as it had in the old days. But that never happened, mostly because the company's leaders simply couldn't imagine a world in which pictures weren't shot on film. The unraveling of the house of Eastman came about not because the company didn't have the technology to compete in the new era that was unfolding but because it lacked the vision to use it.

Why Kodak executives were so blind to the business opportunity the company's own invention had created is a question that will be studied in university business and management programs for years to come. Kodak's research and development labs employed some of the best scientists in the world, and its marketing department was second to none (they invented the phrase "a Kodak moment" as a quick shorthand for the kind of memorable personal event that demanded to be recorded for posterity).

In addition, Kodak owned a string of important patents on digital imaging hardware and processing techniques, including one for the world's first megapixel sensor, developed in 1986, which was capable of producing snapshot-size pictures as sharp as the company's finest-grain films. Yet it failed to capitalize on these strengths.

It's hard to escape the conclusion that the fundamental cause of Kodak's decline lay in a failure of imagination combined with monumental hubris. The company's executives refused to believe that film wouldn't always provide the core of their business, even after cheaper foreign imports by companies such as Fuji began cutting into Kodak's market share in the 1990s. Kodak had been such a beloved brand for so long that its executives thought Americans would never desert it. By the time they woke up to the fact that film sales were dropping precipitously, it was already too late because the digital revolution was in full swing. There again, Kodak found itself behind the curve after its executives failed to anticipate how rapidly and completely the new devices would transform the photography market.

To be fair, Kodak's leaders weren't the only American corporate chieftains to drop the ball in a global marketplace where change was occurring with dizzying speed. For decades, American automakers believed their products were virtually invulnerable against foreign competition and innovation, even as imports from Germany, Japan and Korea began eroding Americans' loyalty to their traditional brands. Detroit's carmakers pooh-poohed the Volkswagen Beetle, the Honda Accord and the Toyota Prius hybrid, and kept on doing exactly what they had been doing for decades right up until the moment they walked into bankruptcy court. The same could be said for the many other U.S. industries that have fallen by the wayside because they ignored the imperatives of change.

If America is ever to regain its manufacturing mojo it can't afford to ignore such lessons. The U.S. still leads the world in the development of new technologies, but that will profit us little if its corporate leaders lack the imagination to seize their potential. The genius of George Eastman, who founded Kodak in 1892, lay in his realization that the value of the "Brownie" camera lay not in the materials of its construction or its technical innovations, but in its ability to give millions of people who had never taken a picture before the means to record the countless large and small domestic incidents that made their lives and those of their loved ones memorable. It was, in a sense, the first "social media," and so it has remained right up through the digital age. Somehow, later Kodak executives forgot that what they were selling was not cameras and film but family history and memories — and so they let their moment slip away.